Financial Services Datacenter Strategy 180-Degree Shift

Data centers have quickly shifted from the crown jewel of financial services IT to a costly technology albatross.

My, how times change. In just a few short years, financial services firms have shifted from building vast, gleaming datacenters complete with the most innovative and “green” technology to trying to get rid of them. Literally.

Today, Citi has closed at least 50 data facilities around the globe, although the newer datacenters -- including the one in Frankfurt -- remain open. The goal of Citi’s datacenter consolidation is to right size its computing capabilities, reduce cost, and prepare for growth. Citi isn’t alone either. Many other banks are rationalizing datacenter space to cut costs and increase efficiency.

NYSE Technologies, which runs the datacenters under its new owner, IntercontinentalExchange, is trying to figure out what to do with its two facilities. ICE CEO Jeff Sprecher has been very clear that ICE bought NYSE Euro­next for NYSE Liffe, the London-based futures and options exchange. What ICE will do with NYSE Technologies and the two new datacenters remains to be seen.

Industry experts say that both of NYSE Technologies’ datacenters remain underutilized and never fulfilled their potential. Opening two years after the beginning of the financial crisis, NYSE’s datacenters never really had a chance. Most brokers had excess capacity in their own facilities and didn’t need space at NYSE. Many brokers had already set up shop at Equinix’s NY4 financial services hub in Secaucus, N.J. To add insult to injury, Equinix approached NYSE Technologies about purchasing the datacenters, but it reportedly only offered 50 cents on the dollar.

Across the financial industry, organizations are taking another look at their datacenter strategies. Many firms are gradually decoupling their organizations from the fixed-cost traditional datacenters. For instance, many cloud providers can ramp up hosted computing capabilities in a matter of hours, while traditional IT services may take days or weeks. External providers can also “ramp down” the services just as fast when the processing capability is no longer needed.

All of these changes do not mean that the financial services datacenter is completely going away. There are still some applications that will take awhile to move to a hosted datacenter for competitive reasons. Likewise, compliance and regulatory concerns will keep customer data secured in the safety of the corporate datacenter too. Make no mistake, though, more services will be provided by datacenter hosting providers. In fact, it’s already happening.
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

Of course, you need to look at this trend in the broad context that "Wall Street" no longer means Wall Street (literally), a transformation that has been occurring over many years. So these data center moves, while significant, strike me as part of a long-term continuum.